US stocks slid yesterday on renewed fears the credit crunch has yet to run its course after Standard & Poor's downgraded debt ratings of three big securities companies and Wachovia, the fourth-largest US bank, ousted its chief executive.
The pressure was on even before Wall Street opened, particularly for financial stocks, as European markets fell after British mortgage lender Bradford & Bingley said the UK mortgage market was deteriorating sharply.
All three major indexes fell about 1 percent, breaking a four-day streak of gains for the S&P 500 and Nasdaq. The equities retreat fueled a broad rally in government bonds, sending benchmark yields down by the most since March.
Shares of Lehman Brothers, Morgan Stanley and Merrill Lynch fell sharply as S&P's move signaled that financial institutions, which have written down more than US$350 billion in losses related to subprime mortgages globally, are still vulnerable.
Economic data added to the sour mood. US manufacturing contracted in May for the fourth consecutive month and inflation pressures surged to their highest in four years, heightening fears the economy could be sliding toward stagflation.
"The problems in the financial sector just keep coming back to the forefront. It's just a reminder that the credit crunch is not over," said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.
"And with inflation concerns, there are a lot of things for people to worry about."
The Dow Jones industrial average fell 134.50 points, or 1.06 percent, to close at 12,503.82. The Standard & Poor's 500 Index ended down 14.71 points, or 1.05 percent, at 1,385.67. The Nasdaq Composite Index was down 31.13 points, or 1.23 percent, at 2,491.53.
Among financial shares, Lehman fell the most, tumbling 8.1 percent to US$33.83, and hit its lowest level since March. Morgan Stanley fell 2.5 percent to US$43.10 and Merrill Lynch lost 3 percent to US$42.62.
Wachovia said it would replace CEO Ken Thompson following growing legal troubles and loan losses tied to the purchase of a big mortgage lender before the housing market imploded. Wachovia's shares fell 1.7 percent to US$23.40 on concerns the move could signal more bad news ahead for the bank, which has seen its stock tumble 58 percent over the past year.
In another executive shake-up, Washington Mutual, a nationwide bank and home lender slammed by the mortgage slump, said it would strip chief executive Kerry Killinger of his title of chairman next month.
Technology shares, which have been top performers over the past three months, also fell on economic concerns and as investors locked in profits. In May, technology overtook financials as the largest sector of the S&P 500.
International Business Machines Corp shares fell 1.6 percent to US$127.36 and were the top drag on the Dow.
Energy-sensitive airline shares slid as the price of oil edged higher again after a brief respite last week. The airline index fell 3.1 percent.
Industrial conglomerates, sensitive both to the price of oil and concerns about the economy, also lost ground. 3M Company shares fell 1.7 percent to US$76.25.
General Motors was a bright spot, gaining 2 percent to US$17.44 after the weekly business newspaper Barron's said shares of the US automaker could triple over the next few years.
Trading volume was low on the New York Stock Exchange, with about 1.1 billion shares changing hands, below last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 1.9 billion shares traded, also short of last year's daily average of 2.17 billion.
Declining stocks outnumbered advancing ones by approximately 2 to 1 on the NYSE and Nasdaq.